Question

Explain the relationship between interest rates and bond value. What makes interest rates change? Is it possible to lose money if you invest in bonds, even federal government bonds? Why or why not?

Answer #1

To speak about the relationship between rates and bond value is depicted byb following formula

Let us assume a bond paying coupon C annualy with face value of 100 and time to maturity of T and Yield to maturity of r then Market Value of Bond is calculated as

V=C/(1+r)+C/(1+r)^2+...+(100+C)/(1+r)^T

As Value of Bond decrases with increase in YTM and vice versa.

Interest rate are affected by many macroeconomic factors such as inflation and Country risk if we speak about federal bonds and company defalut risk if Corporate bonds are considered.

It is possible to lose money in bonds if governemnt is unable to repay the bond on maturity due to increase interest payment (Interest rates on government security may increase due to macroeconomic instability that is conutry risk)

Increase in rate decrease the value of government bond.

Explain the relationship between interest rates and bond value.
What makes interest rates change? Is it possible to lose money if
you invest in bonds, even federal government bonds? Why or why
not?

Explain what you learned about the relationship between interest
rates and bond value. What makes interest rates change? Is it
possible to lose money if you invest in bonds, even federal
government bonds? Why or why not?

What is the relationship between the price of bonds and interest
rates. What is the yield of the bond?
Explain in detail what happens when the Fed increases the money
supply? You should be able to graph that as well.

Describe the relationship between existing bond prices and
market interest rates, and given a rising interest rate
environment, why would an investor want to invest in bonds?
paragraph answer please

What is the difference between nominal and real interest rates?
Explain the relationship between the interest rate and investment
by graph. If the interest rate increases how does change
investment, aggregate demand (AD) and output? Why?

How are bond prices determined in the market? What is the
relationship between interest rates and bond prices?

3. Consider what you know about bonds and bond valuation:
a. Describe the relationship between interest rates (yields) and
bond prices. (5)
b. Explain, in words and graphically, the progression in price
of par, discount, and premium bonds as the bonds move forward in
time to their maturity. (5)

Which of the following describes the relationship between stock
and bond prices and interest rates?
There is a direct and positive relationship between the rate of
interest and stock and bond prices. (As interest go up, stock and
bond prices rise as well.)
The relationship is far too difficult to quantify.
There is an inverse relationship between interest rates and the
price of a stock or a bond. (As interest rates go up, stock and
bond prices decline.)
It varies...

What is the relationship between interest rates and the demand for
investment goods in any time period? You should be able to explain
this relationship, that is, why it exists

What effect would government deficit spending have on interest
rates? Explain. This change in interest rates caused by the
government deficit spending would have a long run effect on
investment spending. What effect would that be and why?

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